Micron shares withstand Lehman assault

Memory chipmaker Micron Technology shaved off $2.05, or 6 percent, to $35.20 Monday after Lehman Brothers lowered the fiscal 2001 earnings estimates for the company and fellow chipmaker Cypress Semiconductor.

Lehman analyst Dan Niles cut Micron's 2001 earning estimate from $1.25 a share to 35 cents a share. Cypress (NYSE: CY) was chopped down to $1.80 a share from $2.20 a share.

Cypress shares moved up 20 cents to $22 in early afternoon trading.

Niles said plunging memory-chip prices and profit margins will hamper both companies for at least the next two or three quarters.

"The supply situation will likely get worse in the first half, while demand looks sluggish at best, with large inventory levels in the supply chain," Niles wrote in a research report.

Texas Instruments (NYSE: TXN) didn't do the chip sector any favors Monday when it warned that its first-quarter sales will fall by 20 percent rather than the 10 percent it had forecast last month.

Its shares were unchanged at $30.15.

First Call consensus expects Micron to earn 8 cents a share in its second quarter on sales of $1.42 billion.

But Niles and other analysts said it might not finish in the black this quarter if average selling prices and margins continue to deteriorate.

"We believe that inventory at the DRAM (dynamic RAM) vendors has increased and that even the lowest-cost DRAM manufacturers will lose money over the next couple quarters," Niles said.

Dan Scovel, an analyst at Needham & Co., agreed with Niles, pointing out that 128-megabit chips selling for $11 each back in October are now selling for around $4 a piece.

"I wasn't too crushed" that Niles came out with the reduction, Scovel said. "There's a lot of weakness in the DRAM market. It's the nature of the beast. This is a commodity business."

Last quarter, Micron missed analysts' estimates by a couple cents a share when it posted a profit of $352 million, or 58 cents a share, on sales of $1.8 billion.

Some analysts are predicting that sales in the second quarter will slip to between $1.1 billion and $1.3 billion, down from $1.39 billion in the year-ago quarter.

Bernstein analyst Vadim Zlotnikov said chipmakers with the highest operating leverage, such as Micron, Texas Instruments and Intel (Nasdaq: INTC), will feel the most pain and margin compression in the next few quarters.

"Looking further ahead, we expect semiconductor industry sales to decline during the first three quarters of 2001 and believe it is too early to broadly enter the group in expectation of 4Q improvement," he wrote.

Micron shares moved up to a 52-week high of $97.50 in July before falling to a low of $28 in October.

Fifteen of the 20 analysts tracking the stock rate it either a "buy" or "strong buy."